U.S. Federal Reserve Beige Book: Minneapolis District (Text)undefined
The following is the text of the Federal Reserve Board’s Ninth District-- Minneapolis.
The Ninth District economy showed signs of moderate growth. Increased activity was noted in consumer spending, professional services, manufacturing and energy. Tourism-related activities slowed in May and June in some areas, but tourism businesses were optimistic for the summer season. Commercial construction and real estate grew moderately fast, while residential construction and real estate grew at a robust pace. The mining sector was sluggish, and agriculture decreased. Labor markets continued to tighten slightly, and wage increases were moderate. Price increases were subdued since the last report.
Consumer Spending and Tourism
Consumer spending increased modestly. A Minnesota-based bar and restaurant chain noted that sales were up moderately during May and June compared with a year ago. A mall manager in North Dakota reported that sales increased modestly while traffic decreased slightly during late May and June; apparel sales were particularly slow. Meanwhile, a Minnesota-based apparel retailer recently reported strong gains in same-store sales. Minnesota vehicle sales were up from a year ago during May and June with truck sales particularly strong, according to a representative of an auto dealers association.
While wet and cool weather slowed May and June tourism-related activities in some areas, tourism businesses were optimistic for the summer season. New boat registrations in Minnesota were down 17 percent in 2013 compared with the same time period in 2012. Nevertheless, a Minnesota state tourism office survey of lodging and camping businesses in the state showed that 38 percent expect higher occupancy this summer with 46 percent expecting level occupancy. After a slow start to the summer season, lodging reservations and traffic to tourism destinations in the Upper Peninsula of Michigan have picked up. In Montana, lodging and visits to attractions during the first part of summer were up from last year.
Construction and Real Estate
Commercial construction activity continued to increase since the last report. The value of June commercial permits in Billings, Mont., increased significantly from last year, while hotel building rose to $6 million in June compared with zero in the first six months of 2012. A manager of an industrial real estate company noted increased interest in building warehouses on speculation because some purchase prices for existing structures are higher than the cost of building new. Several national retailers are opening new stores this year in the Minneapolis-St. Paul area. However, in Sioux Falls, S.D., the value of June permits was down from a year ago. Residential construction increased at a fast pace over past year. The value of June single-family residential building permits in Billings was up 28 percent from last year; multifamily building also increased significantly. The value of June residential permits in the Minneapolis-St. Paul area was up by 19 percent from June of 2012, while it fell in Sioux Falls.
Activity in commercial real estate markets increased since the last report. The University of St. Thomas semiannual survey (May) of 50 Minneapolis-St. Paul commercial real estate leaders noted higher rents, occupancy, land prices and building material costs. Minneapolis-St. Paul area second quarter vacancy rates dropped from the first quarter for retail and industrial space, according to a research firm. Residential real estate market activity increased at a robust pace. May home sales were up 13 percent from the same period a year ago in the Minneapolis-St. Paul area; the inventory of homes for sale was down 22 percent, and median sale prices rose 15 percent. In the Sioux Falls area, June home sales were up 16 percent, inventory was down 15 percent and the median sale price increased 5 percent relative to a year earlier.
Activity at professional business services firms increased since the last report. In Minneapolis, a technology consulting firm reported a recent expansion and an intellectual property protection firm is expanding. A lawyer at a Minnesota-based firm noted an uptick in corporate legal work.
The District manufacturing sector continued to expand since the last report. A June survey of purchasing managers by Creighton University (Omaha, Neb.) found that more manufacturing firms increased activity in Minnesota and the Dakotas than in previous months. An electronic equipment producer is moving forward on a plant in Minnesota. Another Minnesota firm that makes cable for utilities and telecommunications companies reported strong sales during the past few months. Several contacts in the metal forming business reported that they were having very strong years, with a few reporting their best year ever. A firm that supplies capital equipment to that industry is seeing strong demand; the auto sector was a particular source of strength.
Energy and Mining
Activity in the energy sector increased moderately, while mining activity was sluggish. Late-June oil and gas exploration activity increased slightly in North Dakota from the last report and was flat in Montana. A Minnesota utility announced plans for $1.8 billion in upgrades to existing nuclear power plants. Recent output at District iron ore mines was below year-earlier levels. However, development will resume on a stalled copper-nickel mine project in the Upper Peninsula after the mine was sold to another company.
The agricultural sector weakened since the last report. District farmers made progress after a late spring, but remain behind the five-year average for corn and soybean plantings due to recent heavy rains. In some areas, farmers are expected to switch from corn to soybeans due to the weather. Prices increased from a year earlier for wheat, corn, soybeans, chickens, milk, hogs, cattle and eggs; prices fell for turkeys and dry beans. The late plantings, along with concerns about warmer and drier weather later this summer, caused the USDA to increase its corn price forecast slightly, though prices are still expected to decrease from current levels.
Employment, Wages and Prices
Labor markets continued to tighten slightly. In North Dakota, a health care administrative services firm plans to hire 375 new employees by September. A wind tower manufacturer recently announced plans to hire 250 workers in South Dakota when site construction is completed next year. A pipeline company plans to add 110 jobs in Minnesota. May Minnesota unemployment insurance claims were down 2 percent from a year earlier; data in recent months have averaged close to prerecession levels. However, a cellular phone company recently announced plans to lay off 50 employees at a plant in North Dakota. A software distributor announced plans to move its corporate headquarters out of Minnesota, eliminating 150 jobs in the state. In May, federal government employment in Minnesota was at its lowest level in more than 20 years, while state government employment was at its lowest level since January 2008.
Wage increases were moderate. According to a recent St. Cloud (Minn.) Area Quarterly Business Report, 52 percent of respondents expect to increase compensation over the next six months, while 45 percent expect no change. In last year’s survey, 38 percent expected to increase compensation, while 58 percent expected no change.
Price increases were subdued since the last report. A Minnesota-based food producer noted that it expects input cost inflation of 3 percent this year. Metals prices decreased over the past month. Minnesota gasoline prices decreased 90 cents per gallon from a spike in prices at the end of May; recent prices were about the same as a year ago.
SOURCE: Federal Reserve Board